Credit cards, debit cards, charge cards and various other types of cards are used by consumers to make purchases or to obtain cash. These transactions generally take place at a merchant's premises using an electronic Point of Sale (POS) device, and during the transaction the device communicates with other parties to obtain authorization for the transaction, and to initiate the transfer of funds from the customer to the merchant. Similar transactions take place using computer equipment without the intermediary of a merchant.
With increasing international travel, globalization of business and electronic commerce, cardholders sometimes wish to conduct transactions in a foreign country using their card. In this case the merchant would normally use a particular currency, which, in the case of a retailer, would generally be the local currency. The credit card would also have a currency, which would generally be the local currency of its issuing bank. Conventionally, for transactions where the two currencies are different, the currency of the transaction would be the currency of the merchant, and would appear as such, together with an exchange rate on the credit card statement. Dynamic currency conversion (DCC) allows a transaction of this kind to be conducted in the currency of the card, by detecting the card currency and applying a currency conversion at the time of the transaction, so that the cardholder sees the value of the transaction in the currency of the card, at that time.
In a simple example of a purchase by a holidaymaker, a POS device would detect the card number and extract the Bank Identification Number (BIN). The machine would associate the BIN with a currency, take this to be the currency of the card and conduct the sale/purchase in the card currency.